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Suppliers’ Merger and Consumers' Welfare

Listed author(s):
  • Eric Avenel

    (Universite de Rennes I and CREM (UMR CNRS 6211))

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    This article explores the consequences of a suppliers' merger on consumers' welfare when the product is sold to consumers by independent retailers competing à la Cournot. The literature shows that under the standard assumptions of private contracting and passive beliefs, there is no impact at all. I show that this unintuitive result strongly depends on the implicit assumption that suppliers have infinite capacities of production. Indeed, assuming that suppliers face a capacity constraint and that retailers hold out-of-equilibrium beliefs compatible with this constraint, I show that the merger raises the price on the final market and reduces consumers' welfare.

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    File URL: http://www.ekonomia.ucy.ac.cy/RePEc/ekn/ekonom/papers/01-12S.pdf
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    Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.

    Volume (Year): 15 (2012)
    Issue (Month): 1 (Summer)
    Pages: 1-21

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    Handle: RePEc:ekn:ekonom:v:15:y:2012:i:1:p:1-21
    Contact details of provider: Web page: http://www.ekonomia.ucy.ac.cy/

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    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    2. Eric Avenel, 2012. "Upstream Capacity Constraint and the Preservation of Monopoly Power in Private Bilateral Contracting," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 578-598, December.
    3. Patrick Rey & Thibaud Vergé, 2004. "Bilateral Control with Vertical Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 728-746, Winter.
    4. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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